UNIVERSITY OF VAASA FACULTY OF TECHNOLOGY INDUSTRIAL MANAGEMENT
Hakki Meseci
SLOVENIAN FOREST INDUSTRY
AND SMART SPECIALIZATION STRATEGIES:
Sustainable Competitive Advantage analysis in a triple helix framework
Master’s Thesis in Science of Economics and Business Administration
Industrial Management
VAASA 2015
TABLE OF CONTENTS page
ABBREVIATIONS 3
LIST OF FIGURES 4
LIST OF TABLES 5
ABSTRACT 6
1. INTRODUCTION 7
1.1. Research questions 9
1.2. Structure of the thesis 9
2. THEORETICAL FRAMEWORK 11
2.1. Smart specialization 11
2.1.1. Smart specialization at the regional level 14
2.2. Triple-helix concept 16
2.3. Strategic management 23
2.3.1. Strategic gap analysis 23
2.3.2. Strategic decision-making 24
2.4. Operations strategy 25
2.4.1. Competitive priorities 30
2.4.2. Resource-based view of the firm 31
2.5. Sustainable Competitive Advantage 33
3. SLOVENIA AND SMART SPECIALIZATION STRATEGIES 35
3.1. The Republic of Slovenia 35
3.2. Forests and wood-processing sector in Slovenia 37
3.3. Sleet disaster and its effects in Slovenia 41
3.4. Smart specialisation strategy of Slovenia 42
4. METHODOLOGY 48
4.1. Research methods 48
4.1.1. Sense and Respond methodology 48
4.1.2. Critical Factor Index Methods 49
4.1.3. Manufacturing Strategy Index 52
4.2. Data collection 54
4.3. Validity and reliability 55
5. EMPIRICAL RESEARCH 57
5.1. Case introduction 57
5.2. Analysis and results 58
5.2.1. University group 59
5.2.2. Company group 63
5.2.3. Public sector group 68
5.2.4. New CFI′ model results comparison and trend analysis 71
6. DISCUSSION AND CONCLUSION 78
6.1. Summary of research findings and general implications 78
6.2. Managerial implications 79
6.3. Limitations of the study and recommendations for further research 81
6.4. Conclusion 83
LIST OF REFERENCES 84
APPENDICES 95
Appendix 1 Questionnaire for university-university cooperation 95 Appendix 2 Questionnaire for university-company cooperation 96 Appendix 3 Questionnaire for university-public cooperation 97 Appendix 4 Questionnaire for company-company cooperation 98 Appendix 5 Questionnaire for company-university cooperation 99 Appendix 6 Questionnaire for company-public cooperation 100 Appendix 7 Questionnaire for public-public cooperation 101 Appendix 8 Questionnaire for public-university cooperation 102 Appendix 9 Questionnaire for public-company cooperation 103
ABBREVIATIONS
BCFI Balanced Critical Factor Index
C Cost
CFI Critical Factor Index
F Flexibility
FGR Forest genetic resources IUS Innovation Union Scoreboard KET Key enabling technology MSI Manufacturing Strategy Index NIS National Innovation System
NSCFI Normalized Scale Critical Factor Index
Q Quality
R&D Research and development R&I Regional innovation RBV Resourced-based view
RIS3 Research and innovation strategies for smart specialization S&R Sense and Respond
S3 Strategies for smart specialization SCA Sustainable Competitive Advantage SCFI Scaled Critical Factor Index
SFI Slovenian Forest Institute
T Time
ZGS Zavod za Gozdove Slovenije
LIST OF FIGURES page
Figure 1. Hypothetical structure of RIS3 13
Figure 2. Balanced Triple Helix model 18
Figure 3. A synthetic representation of Triple Helix systems 21
Figure 4. The concept of strategic gap 24
Figure 5. A process model for manufacturing strategies 27
Figure 6. County map of the Republic of Slovenia 35
Figure 7. Key attractiveness indicators for Slovenia 36
Figure 8. Slovenian forest reserves by 2013 37
Figure 9. Statistical data for Slovenia 39
Figure 10. Initial smart specialization plan for Slovenia 43
Figure 11. Slovenia innovation index compared to EU 45
Figure 12. Triple-helix representation of Slovenian forest industry 57 Figure 13. Past NSCFI values of attributes university-university cooperation 59 Figure 14. Future NSCFI values of attributes for university-university 60 Figure 15. Past NSCFI values of attributes for university-company cooperation 60 Figure 16. Future NSCFI values of attributes for university-company cooperation 61 Figure 17. Past and Future NSCFI values for university-public cooperation 62 Figure 18. Past NSCFI values of attributes for company-company cooperation 64 Figure 19. Future NSCFI values of attributes for company-company cooperation 64 Figure 20. Past NSCFI values of attributes for company-university cooperation 65 Figure 21. Future NSCFI values of attributes for company-university cooperation 66 Figure 22. Past and Future NSCFI values for company-public cooperation 66 Figure 23. Past and Future NSCFI values of public-public cooperation 68 Figure 24. Past and Future NSCFI values of public-company cooperation 69 Figure 25. Past and Future NSCFI values of public-university cooperation 70 Figure 26. Average attribute value by competitive priorities for university group 75 Figure 27. Average attribute value by competitive priorities for company group 75 Figure 28. Average attribute value by competitive priorities for public group 76
LIST OF TABLES page
Table 1. Miles and Snow’s strategy typology 29
Table 2. S&R questionnaire framework 54
Table 3. Distribution of responses by cooperation group 55 Table 4. Competitive priority and operations strategy results for university group 63 Table 5. Competitive priority and operations strategy results for company group 67 Table 6. Competitive priority and operations strategy results for public group 70 Table 7. Trend behaviour and CFI′ results by number of attributes 71 Table 8. Comparison of competitive priority weights for both models 73
UNIVERSITY OF VAASA Faculty of Technology
Author: Hakki Meseci
Topic of the Master’s Thesis: Slovenian Forest Industry and Smart Spe- cialization Strategies: Sustainable Competi- tive Advantage analysis in a triple helix framework
Instructor: Josu Takala
Degree: Master of Science in Economics and
Business Administration Major subject: Industrial Management Year of Entering the University: 2013
Year of Completing the Master’s Thesis: 2015 Pages: 103
ABSTRACT: Sustainability has long been an area studied and investigated by scholars and professionals. Recently, sustainability has become a global mission rather than be- ing just a term. Sustaining a competitive advantage over the competitors and economic development for long term success requires a great amount of cooperation between partners. Therefore, building networks and value chains where parties from different backgrounds link up and operate for economic development both at micro and macro levels become crucial.
The potential of the Slovenian forest industry, the sleet disaster experienced in 2014, and the smart specialization projects conducted by the EU all together create an envi- ronment which is full of lessons to learn, problems to identify and also opportunities waiting to be discovered. The disconnection or the lack of communication between the three spheres: companies, universities and the public actors; forming the triple helix of Slovenian forest industry, might constitute a severe problem on the way to sustainable development, especially while the country and the forest industry are experiencing such conditions. Therefore, this study investigates the Slovenian forest industry with a triple helix framework using Sense and Respond (S&R) method. The data obtained from the different actors of the industry was analysed in order to gain insights in the cooperation level of these actors. The findings are discussed under the light of qualitative investiga- tion of Slovenian smart specialization strategies, as to form a basis for the empirical research.
The results of analysis suggest there is a level cooperation between the three spheres of triple helix representing the Slovenian forest industry, with a greater potential for devel- opment in cooperation of public actors with other parties. The strategic positioning of all the parties involved in triple helix should be done accurately. Especially at the times when cooperation and mobilization are needed nationwide, for permanent prosperity, temporary sacrifices should be made.
KEYWORDS: Sense and Respond; Smart specialisation; Triple helix; Strategic decision- making; Operations strategy
1. INTRODUCTION
Sustainability has long been an area studied by scholars and investigated by profession- als. Despite having various definitions in different contexts, the common meaning of the term is meeting today’s needs with a sense of life quality without consuming the future.
Recently, sustainability has become a global mission rather than a term. While it is con- cerned with the environment and the society, for the business world it means develop- ment, economic growth and success in general. The idea of continuous development and success has been attractive for businesses. This encouraged organizations and compa- nies to develop strategies to achieve sustainability. However, as the competition gets more aggressive, it becomes a struggle for survival. Having an advantage over competi- tors within the market is not sufficient for a company to succeed, as the competitive advantage can be duplicated and change hands. Therefore, it becomes a question of whether the company is able to sustain the competitive advantage. Additionally, sus- tainability is about managing the resources of a company with an efficient configuration in response to changing environment. This particular configuration is ensured by set of strategic decisions called operations strategy. (Barnes 2008:28; Davis, Aquilano &
Chase 2003:30–32.)
Smart specialisation, on the other hand, is a strategic approach to sustain economic de- velopment through research and innovation in particular areas. The foundation of smart specialisation concept can be traced back to the work of Etzkowitz (2002) where he discusses the roles of knowledge in society and university in the economy with the triple helix thesis of relations among university, industry and government (Stanovnik 2014).
According to the model developed by Etzkowitz and Leydesdorff (1995), via coopera- tion between the actors of triple helix, private sector adopts new technologies and com- petitive advantage in the market (e.g. internationally), while universities develop aca- demic knowledge and analytical skills, gain academic competitive advantage, image, reputation and funding for academic activities. Public sector (government according to the model) also benefits from the cooperation by gaining strategic advantages such as economic development, resources, new jobs, higher tax revenues and thus regional (na-
tional) development. Therefore, the triple helix approach is a model aiming at realizing mutual benefits for university, industry, and government despite different interests.
Slovenia is one of the most forested countries in Europe with forests covering more than a half of its territory. 76% of Slovenian forests are private property, while the remaining 24% is owned by the state or communes. State-owned forests are larger and undivided, which enable professional management. However, the private forest estates are mostly small and fragmented. Until recently, the country has been successful in conserving its forests in a healthy sustainable and predominantly natural state. However, country’s forest management did not result in a successful use of wood or the well-developed wood technology. Wood is the only abundant natural renewable resource in Slovenia, however, is not sufficiently used or sustained (Humar & Kraigher 2009). Although the Slovenian wood-processing and furniture industries have a good reputation, they have been limited in terms of value added products as well as the other forest-based sectors.
Especially after the sleet disaster in 2014, which damaged half of country’s forest re- serves, the need for sustainable forest management for both during the recovery process and for future has become a matter of priority.
The potential of the Slovenian forest industry, the sleet disaster experienced in 2014, and the S3 projects conducted by the EU all together create an environment which is full of lessons to learn, problems to identify and also opportunities waiting to be discov- ered. The disconnection or the lack of communication between the three spheres com- panies, universities and the public actors, forming the triple helix, might constitute a severe problem on the way to sustainable development, especially while the country and the forest industry are experiencing such condition.
These issues discussed above, together trigger the motivation for conducting this study.
In order to better understand the conditions of triple helix environment in Slovenian forest industry as well as the relations between involved actors, Sustainable Competitive Advantage (SCA) analysis were made using the Sense and Respond (S&R) method.
Also, a literature review was carried out to gain insights in theoretical background of main terms engaged in this study. Furthermore, a qualitative investigation of Slovenia
was conducted, in terms of country overview, smart specialisation strategies, forests industry and reserves.
1.1. Research questions
This thesis work was initially conducted to find answers to the following research ques- tions which were brought forward by the issues discussed above:
1. What are the smart specialization strategies being considered in Slovenia regard- ing the sustainable development and management of country’s forest industry?
2. What is the level of cooperation between the actors of Slovenian forest industry in terms of competitive priorities and operations strategies?
3. What are the directions for potential development of the critical resource areas?
In addition to these questions, this study investigates the general characteristics of Slo- venian forest industry with a closer look to the effects of the sleet disaster in 2014. It is important to observe whether the disaster caused a change or shift in strategic position of the actors in Slovenian forest industry in a triple helix framework. After building the theoretical foundations and identifying qualitative characteristics, the second and the third questions are answered with quantitative methods applied in empirical data. It is also important to mention that a new Critical Factor Index (CFI) method was used in the study to compare results and to present whether similar features exist between the new and traditional models.
1.2. Structure of the thesis
This thesis consists of six main chapters which begins with an introduction and contin- ues with theories and terminology relevant to the case, in order to provide an appropri- ate background and foundation for the empirical research. In Chapter 1, a general out- line of the research is introduced with the motivation. Also, research questions and the structure of the thesis are given in this chapter. The technical and theoretical back-
grounds of the study are presented in Chapter 2. In addition to the development of smart specialisation theory and triple helix model, theoretical background in strategic man- agement and operations strategy are discussed in this chapter in order to link theory to practice. In Chapter 3, the country profile of Slovenia is given with further information on smart specialisation strategies in the country, forest resources and industry with ef- fects of the sleet disaster experienced recently. In Chapter 4, in addition to the tradition- al methods used in this study, a new method is introduced. The process of data collec- tion with validity and reliability of the methods are also presented in this chapter. The results of the analysis and comparisons of the two methods are discussed and illustrated in Chapter 5. Finally, in Chapter 6, the findings of the study are discussed and relative implications were proposed. The conclusion of the thesis is given after limitations and recommendations for further research at the end.
2. THEORETICAL FRAMEWORK
It is important to understand the background and the development of the theories and methods used in this research, before moving on to the analysis. This chapter, therefore, provides the theoretical framework of the study. The following sections are given in a sequence that links the theories to each other.
2.1. Smart specialization
Smart specialisation is a concept that has emerged as a policy agenda for science, tech- nology, and innovation as a response to important changes in the world economy (Stanovnik 2014). It is a strategic approach to sustain economic development through targeted support to research and innovation (EUA 2014). Foray and Goenaga (2013) define smart specialisation as an innovative policy concept which aims to favour some technologies, fields, population of firms and process of identification and selection of such desirable areas for innovation policy intervention. Also, vertical prioritisation for R&D and technological activities is a difficult task; therefore, smart specialisation fo- cuses on defining a method to help policy-makers identify these areas (Foray & Goena- ga 2013).
The foundation of smart specialisation concept can be traced back to the work of Etz- kowitz (2002) where he discusses the roles of knowledge in society and university in the economy with the triple helix thesis of relations among university, industry and gov- ernment (Stanovnik 2014). However, the term “smart specialisation”, in today’s context, was first mentioned by Foray and Van Ark as a part of the “Investing in European Re- search” reports delivered by “Knowledge for Growth” expert groups in 2007. According to Stanovnik (2014), the theoretical roots of smart specialisation are grounded in the classical economic growth theories, trade specialisation, and economic research on in- dustrial development, as well as the modern strands of economic though from evolu- tionary economics to agglomeration economics. Furthermore, as an economic frame- work being focused on small countries (regions) aiming to illustrate how public poli- cies, framework conditions, especially R&D and innovation investment policies, smart
specialisation can influence economic, scientific, and technological specialisation, and thus enable a region gain productivity, competitiveness, and economic growth (Stanov- nik 2014).
Smart specialisation strategies are needed for having European added value at the re- gional level, including cross-regional collaborations. In today’s changing world EU tar- gets becoming a smart, sustainable and inclusive economy, helping the EU and the Member States delivering high levels of employment, productivity, and social cohesion.
The European Parliament defined smart specialisation strategy as the national or region- al innovation (R&I) strategies which set priorities for building competitive advantage by developing and matching research and innovation strengths to the needs of businesses in order to respond to emerging opportunities and the developments in the market. It can thus be a form of, or be included in a national or regional research and innovation stra- tegic policy framework. These strategies are developed by national or regional manag- ing authorities and stakeholders and higher education institutions, as well as industry and social partners in an entrepreneurial discovery process. (European Commission 2014.)
Smart specialization is an upgraded version of the existing methodology for Structural Funds programming, based on 15 years of experience in supporting innovation strate- gies in the regions, and economic thinking by major international institutions such as the World Bank, and the IMF. It is about identifying the unique characteristics and as- sets of each country and region, highlighting their competitive advantages, and strengthening regional innovation systems to maximise knowledge flows and spread the benefits to the regional economy. (European Commission 2014.)
In the context of Europe 2020 strategy that EU has set out its vision for Europe’s social market economy, smart specialisation emerges as a key element for place-based innova- tion policies. Therefore, it can be defined as national or regional research and innova- tion strategies for smart specialisation (RIS3) which are integrated place-based econom- ic transformation process that have the following five qualities (Foray, Goddard, Bel- darrain, Landabaso, McCann, Morgan, Nauwelaers & Ortega-Argiles 2012.):
Focus on policy support and investments on both key national and regional priori- ties, challenges and needs for knowledge-based development;
Based on each country’s or region’s strengths, competitive advantages and potential for excellence;
Support technological and practice-based innovation targeting stimulating invest- ment for private sector investment;
Influence on stakeholders, making them fully involved and encouraging innovation and experimentation;
Including sound monitoring and evaluation systems, thus evidence-based.
Figure 1. Hypothetical structure of RIS3 (Rainoldi 2013).
In order to make smart specialization strategies work in the regions, there should be some sort of structural change and a process which is not mutually-exclusive. Firstly, there is a transition stage in which an existing sector moves to a new one based on co- operative institutions, processes, the collective R&D, engineering, manufacturing capa- bilities etc. Secondly, technological upgrading of an existing industry is required. This is called modernization, which involves the development of specific applications of a
RIS3
Forestry technologies for mountain areas
Tourism: innovative health and sport services Renewable energy: bio-mass
Bio-economy: New use of cellulose KETs for
SMEs: Tech- nology trans- fer & audits, demonstra-
tors, pilots
Skills and in- novation ca- pacities: en- trepreneurial,
innovation management,
creative
Key Enabling Technology (KETs) for better efficiency and quality. KETs are seen as important component for smart specialisation strategy due to their horizontal nature and transformative potential. For instance, the Finnish pulp and paper industry values nano- technology as it has the potential of being a promising source for valuable applications and advances in the sector. Thirdly, diversification takes place in cases where the dis- covery concerns potential economies of scope and spill-overs that are likely to occur between an existing activity and a new one. Lastly, R&D and innovation in a certain field can make low growth activities suddenly become more attractive as a radical foun- dation of a new domain that also involves entrepreneurial activity. Therefore, smart spe- cialization is about creating variety rather than creating technology (Foray et al 2012.) The economic transformation that smart specialisation aims at can be summarised in four general principles (4Cs). The four Cs of smart specialisation which are also the leading elements of RIS3 process are (tough) choices and critical mass, competitive advantage, connectivity and clusters, and collaborative leadership. The following can be implemented as an approach to RIS3 depending on the specificity of the regional con- text (Foray et al 2012.):
Analyses of the regional context (including potential for innovation),
Building a sound and comprehensive governance structure,
Development of a common vision for the future of the region,
Selection of the most important priorities for the regional development,
Establishment of appropriate policy mixes,
Integration of audit and evaluation systems.
2.1.1. Smart specialization at the regional level
The European Union and its development endeavours including all the major and minor projects have a lot to offer to the society, industries, and also to the educational insti- tutes. When it comes to smart specialisation, the collaboration between all the parties involved become a more crucial requirement for reaching the targeted outcomes. RIS3 process should be interactive, regionally-driven and consensus-based, since the innova-
tion process is a collective social endeavour (Foray et al 2012). According to Statovnik (2014), despite having borders to other regions with plenty of complementary assets, S3 processes are mostly defined within the parameters of each region.
Although regional development is also a collective social endeavour in which national and supra-national levels play their part, the regional level is the most important part of the process, not least because no one has a greater commitment to or knowledge of a region than the individuals and organisations that are based there.
Foray et al. 2012
Stanovnik (2014) suggests, although some focus on the regional level, the regional- national alignment of strategies and policies is crucial. Especially in the regions with strong innovation potential, a well-organised network of institutions and stakeholders, making a balanced choice of “smart” priorities is one of the key challenges, since it re- quires considering economic strengths, and being flexibly open to new opportunities.
Moreover, the key challenge in less advanced regions is to provide the appropriate framework to build capabilities and encourage entrepreneurial discovery process and cooperation between stakeholders with government. Furthermore, it is necessary to de- velop linkages between regions and nations as a part of internationalisation process.
(Angelova, Jurlina Alibegovic & Redzepagic 2014.)
There are a number of organizations that constitutes the regional knowledge ecology.
These are public authorities, investors, enterprises, international experts, actors of knowledge, civil society (Foray et al 2012). There are three main players involved in RIS3 process for each region (if we consider regions as micro-level): higher education sector, private sector, and public sector. These actors form the triple helix which is the traditional joint-action management model that would develop the required environment for supporting and utilizing the innovation activities as well as the R&D efforts (Foray et al 2012). Triple Helix model is further discussed in the following sections.
Public, private and higher education sectors are involved in the mechanism for produc- ing a regionally-attuned smart specialisation strategy. In order to make the region a liv- ing laboratory for new, more sustainable ways of working and living, contributing to local, national and European development objectives, these key regional actors should be both internally and externally well-connected. Failing this, from the public sector point of view, there would be lack of coherence between national and regional policies, political leadership, and a shared vision at the local level. In addition, a disconnection would mean no coordination, poor motivation, less demand and less interest in innova- tion for the private sector. Lastly, the engagement of players in the higher education sector such as schools, universities and research centres would be discouraged and the focus would shift towards rewards for academic research and teaching. Resulted by dis- connection, these would lead to ineffective partnership, lack of shared understanding and entrepreneurs staying out of the regional planning. On the other hand, once regional research and innovation strategies for smart specialisation are aligned with national strategies with a strong connection, building of the infrastructure for growth, generation of intellectual and human capital assets for the region as well as development of skills required can be achieved. In addition, generation of evidence-based policies which sup- port smart innovation and coherent policies that link territorial development to innova- tion and higher education would be possible. (Foray et al 2012.)
According to Yegorov and Ranga (2014), based on their study about EU cooperation in Ukraine, in order to transform the existing industry-government and university- government pairs into a functional university-industry-government trilateral partnership and a well-established triple helix system, both national and EU support, as well as the synergies between these two are critical. The concept of triple helix and its development is further discussed in the following section.
2.2. Triple-helix concept
Universities, as the main knowledge centres, have been a crucial factor spreading the knowledge to society since the first university was established in 19th century. Especial-
ly after the industrial revolution, research activities became another main role of the universities in addition to education, namely first academic revolution. After, applied and industry-based researches started the university-industry cooperation. Today, it is not possible to neglect the benefits of this cooperation for both the past and future.
However, it brought forward the need for a framework or model to manage this rela- tionship efficiently over time. The triple helix approach is one of these models aiming at realizing mutual benefits for university, industry, and government despite different in- terests.
Triple helix concept was first initiated by Etzkowitz (1993), adding university-industry relationship government as the third dimension. Etzkowitz and Leydesdorff (1995) pro- posed the model as a formula so that these three could benefit from the cooperation alt- hough they are different in terms of organization structure, mission, vision, targets and success factors. According to the model, with such cooperation, while private sector adopts new technologies and competitive advantage in the market (e.g. internationally), universities develop academic knowledge and analytical skills, gain academic competi- tive advantage, image, reputation and funding for academic activities. Public sector (government according to the model) also benefits from the cooperation by gaining stra- tegic advantages such as economic development, resources, new jobs, higher tax reve- nues and thus regional (national) development. On the other hand, the triple helix model does not only focus on building relationships for cooperation between these parties, but developing a new organizational structure accordingly. Neoclassical economic ap- proaches suggest universities and research institutes produce knowledge and industries convert this knowledge into application. However, exchanging roles is one of the im- portant features of Triple Helix model, as for instance, universities converting knowledge and theory into practice and industries producing knowledge.
Etzkowitz and Leydesdorff (2000) distinguish three types of configuration of Triple Helix models. The first configuration, namely statistic model, suggests the dominant government control of the relationship with university-industry cooperation, and public governance of building and conducting the relationships. The second model named
“laissez-faire” is based on separation of relationship and cooperation between university
and industry from government intervention or keeping it at the least possible level.
However, these two models are not adequate for building the cooperation and manage them sustainably. According to Etzkowitz and Leydesdorff (2000) the first model is viewed as a failed developmental model since it discourages innovation and the second model is another version of it to reduce the role of the state. Therefore, there is need for an environment where government intervention is less, cooperation are more encourag- ing, and technically and financially supportive. The third model fulfils this need as an alternative aiming at realizing an innovative environment which consists of university spin-off companies, different (trilateral) initiatives for knowledge-based economic de- velopment, and strategic alliances among companies (with different size, area and level of technology), government laboratories, and academic research groups (Etzkowitz and Leydesdorff 2000; Etzkowitz 2003, 2008).
Figure 2. Balanced Triple Helix model (Etzkowitz & Leydesdorff 2000; Ylinenpää 2013)
Etzkowitz (2002b, 2003) identifies a four-stage development for triple helix:
Academia
(universities, research institutes)
State
(government, local, regional, national,
supra-national)
Industry
(large and small companies) Trilateral
networks
Hybrid organizations
I. Internal transformation in each of the helices: Universities play a new important role in society with their contribution to effective use of knowledge. The traditional boundaries between academia and industry are elided by the entrepreneurial univer- sities supported and sponsored by governments. Strategic R&D alliances among companies and government are considered as parallel developments.
II. Influence of one helix upon another: The Patent and Trademark Law became an in- direct industrial policy through which universities are encouraged to participate in and assist industrial innovation after the Bayh-Dole Act of 1980 which was estab- lished as a stable framework for academic technology transfer by the US federal government. Secure rules of the game for the disposition of intellectual property encouraged the spread of technology transfer to a broader range of universities.
III. Creation of a new overlay of trilateral networks and organizations from the interac- tion among three helices: In order to fill the gaps in the innovation system by brain- storming new ideas groups such as Joint Venture Silicon Valley, the Knowledge Circle of Amsterdam, the New England Council are formed.
IV. A recursive effect of these triple helix networks, both on the spirals from which they emerged and the larger society: The capitalization of knowledge changes the way academic scientists view the results of their research and the role university has regarding industry and government.
In the Triple Helix, in order to improve the conditions for innovation in a knowledge- based society, industry operates as the locus of production; government as the source of contractual relations guaranteeing stable interactions and exchange; the university as a source of new knowledge and technology. The Triple Helix denotes a transformation in the relationship among and within each of these three spheres. (Etzkowitz 2003.)
The three spheres in triple helix model of innovation and the interplay between these are viewed differently in different environments depending on the relations being bottom- up or top-down (Etzkowitz 2002a). Considering them as separate institutions, triple he- lix is based on academic, industrial, and governmental spheres and the knowledge flow among them. According to this, interactions take the form of contacts over defined or- ganizational boundaries mediated by organizations such as industrial liaison, technology
transfer, contract offices and office of external relations. Another perspective is that these three institutions take each other’s roles and performing accordingly with univer- sities creating research parks or performing as local innovation organizer. (Etzkowitz 2002a; Nilsson et al. 2003.)
The triple helix thesis is expressed in the following ten propositions by Etzkowitz (2003):
Arrangements and networks among the three institutional spheres provide the source of innovation rather than any singly driver.
Invention of organizational innovations, new social arrangements and new channels for interaction become as important as the creation of physical devices in accelerat- ing the pace of innovation.
The interaction between linear and reverse linear dynamics results in the emergence of an interactive model of innovation integrating research and practice.
The capitalization of knowledge occurs in parallel with the cogitization of capital.
Capital formation occurs in new dimensions as different forms of capital are created and transmuted into one another: financial, social, cultural, and intellectual.
Globalization becomes decentralized and takes place through regional networks among universities, multinational corporations, and international organizations.
Developing countries and regions have the possibility of making rapid progress by basing their development strategies on the construction of niche knowledge sources, supported by the political economy.
Reorganization across institution spheres, industrial sectors, and nation-states are induced by opportunities in new technologies that emerge from syntheses among previous interdisciplinary innovations in an on-going flow.
Universities increasingly become the source of regional economic development and academic institutions are re-oriented or founded for this purpose.
The ability to make the transition from one technological paradigm to another as the potential of an earlier regime becomes exhausted is the hallmark of a Triple Helix region.
Over the last two decades, theoretical and empirical research for triple helix has grown significantly providing a general framework for complex innovation dynamics. Howev- er, Ranga and Etzkowitz (2013) discuss that the research does not provide an explicit analytical framework for the conceptualization of triple helix interactions into an inno- vation system. Triple helix systems in the format of “innovation system” are defined as a set of components, relationships among these components, and functions of the sys- tem.
Figure 3. A synthetic model of Triple Helix systems (Ranga & Etzkowitz 2013).
According to Carlsson (2003) the innovation systems perspective was used to better understand how institutional arrangements facilitate interactions among economic actors in the market. The refined concept “national innovation systems” (NIS) includes a set of innovation actors such as: firms, universities, research institutes, financial institutions, government regulatory bodies etc. However, NIS became blurred by time since business and technology internationalization extended beyond national borders, and the integra- tion of innovation systems grew, driven by economic and political processes. As a result of national innovation systems approach failing to capture the interaction between inno- vation actors, segmented levels of the system were introduced. Regional Innovation Systems is one of these new concepts emerged in the context of the increasing regional- isation of the early 1990s. According to Doloreux and Parto (2005) the concept includes a set of regional actors targeting to reinforce regional innovation capability and com-
petitiveness through technological learning, regional technology alliances arising from geographical distribution of economic and technological effects, or autonomous busi- ness environments. (Ranga & Etzkowitz 2013.)
In order to understand the behaviour and specific contributions of Triple Helix actors to production and use of knowledge for innovation, Ranga and Etzkowitz (2013) suggests three important distinctions between:
Individual and institutional innovators,
R&D and non-R&D innovatiors, and
“single-sphere” and “multi-sphere” (hybrid) institutions.
According to these distinctions, innovation organizers, holding a key institutional posi- tion and coming from any sphere, coordinate a mix of top-down an bottom-up processes and innovation stakeholders of different backgrounds and perspectives. Entrepreneurial scientists, combining academic and business elements, attend advancing the frontiers of knowledge and mining its practical and commercial results for industrial and financial returns. R&D innovators can also be found in each of the university, industry and gov- ernment institutional spheres and in the non-profit sector such as charities, foundations, trade associations. On the other hand, non-R&D innovators are generally associated with company units such as design, production, marketing, sales and others which are involved in non-R&D activities. Lastly, single-sphere institutions are described within a single institutional sphere, which are characterized by solid boundaries and with low level of interaction with other sphere, while multi-sphere (hybrid) institutions operate at the intersection of the spheres and synthesize elements of each sphere. (Ranga & Etz- kowitz 2013.)
Governments are taking either a more or a less active role in knowledge-based econom- ic development as the triple helix of innovation emerges in different societies. In coun- tries following a linear model, intermediate mechanisms convert research into use. In- stead of the traditional direct approaches, an indirect and decentralized innovation poli- cy might be more effective as there are regional differences and incorporate bottom-up
initiatives. Nonetheless, the common goal is exploring how to build upon existing re- sources to create niches of technological innovation and secure a place within the divi- sion of labour in the global economy. (Etzkowitz 2008:137)
The production and diffusion of knowledge through a variety of channels allows a better circulation of people, ideas and capital in Triple Helix spaces. This also stimulates or- ganizational creativity and combination of regional and local resources for reaching mutual objectives and new institutional formats. (Yegorov & Ranga 2014.)
2.3. Strategic management
Strategy refers to the plans set by the top level management for developing and sustain- ing competitive advantage. Strategic management, on the other hand, is a broader term since it includes top management’s analysis of organization’s environment and plan for strategy implementation and control. In other words, strategic management is the pro- cess which includes what must be done before a strategy is formulated. This process can be summarized in five steps: external analysis, internal analysis, strategy formulation, strategy execution, and strategic control. (Parnell 2014:1–11.)
Strategic thinking in management involves two processes: planning and thinking. Ac- cording to Mintzberg (1994) planning concerns analysis, while thinking involves syn- thesis. Traditional strategy was mainly about building long-term defensible positions, while today’s conditions require strategies to focus on continuous adaptation and im- provement (Eisengardt and Brown 1998). (Steptoe-Warren, Howat & Hume 2011.) 2.3.1. Strategic gap analysis
A strategic gap reflects the imbalance between the current and the desired positions of the organization strategically (Harrison 1986). In other words, it “is a measure of the imperfect fit between the organization and its external environment” (Harrison 1996).
Strategic gap does not exist if the capabilities of an organization are fully committed to exploiting all opportunities and avoiding all threats. (Harrison 1996.)
A gap analysis begins with assessment of the main capabilities of the organization in the principal categories of management, technology, policies, and resources. Another im- portant point about this approach is that it involves the development of capabilities to discover areas of strength and weakness. Leontiades (1982) propose that strategic deci- sions are “a compromise between offence and defence with the optimum balance de- pendent on awareness of external conditions and skilful utilization of internal re- sources”. (Harrison 1996.)
Figure 4. The concept of strategic gap (Harrison 1996).
As shown in Figure 4 there are three variations of strategic gap: positive, negative, and zero strategic gap. According to this if O>E, the strategic gap is balanced in favour of the organization thus a positive gap exists. If E>O, the organization is unable to exploit available opportunities, deal with threats, fulfill expected responsibilities. In other words, the organization is at a significant disadvantage in comparison with its external environment. (Harrison 1996.)
2.3.2. Strategic decision-making
A vital aspect of the strategist’s role, while steering the organization into the future, is decision making (Steptoe-Warren et al. 2011). The two schools of thoughts in decision- making theory are: analytic and experiential (incremental) schools. Both of these
schools follow the same process in decision making: problem definition, alternative identification, evaluation and selection, and implementation. (Sipp & Carayannis 2013.) Strategic decisions are considered as one of the main means in an organization’s man- agement by which limited resources are rationally committed to reach managerial goals for success, although they are complex and involve dynamic variables. The managerial decision-making and strategic gap analysis together form the strategic decision-making.
(Harrison 1996.)
Harrison (1996) suggests using the following five criteria for identifying and making a strategic decision:
The decision is intended to define the relationship between the organization and its environment.
The decision takes the organization as a whole for the analysis.
The decision encompasses all the major functions of the organization.
The decision provides guidance for all the administrative and operational activities.
The decision is important to the long-term success of the whole organization.
Decision-making process is also vital for developing resources, as it is difficult to de- termine where the performance heterogeneity exists in the firm and as well as imple- menting resource-based strategies (Foss 1997; Priem & Butler 2001). According to Amit and Schoemaker (1993) and Teece et al. (1997) for managers seeking to build competitive advantage, resource-based theory is not useful as is limited to explaining the past performance. (Kunc & Morecroft 2010.)
2.4. Operations strategy
Strategy is one of the most frequently-used words in the business world. It is defined as the direction and scope of an organization over the long-term, which gains advantage in a changing environment through its resource configuration with the aim to meeting
stakeholders’ expectations (Johnson, Scholes & Whittington 2005). Operations man- agement, and thus operations strategies are mainly concerned with organizational re- sources. The way that a business interacts with its external environment and the ability to meet its stakeholders’ needs both depend on operations function. Therefore, opera- tions management is a fundamental part of an organization’s strategy. In an organiza- tion, strategy is considered to be at three levels: corporate level, business level, and functional level. Corporate level strategy is the highest level of strategy, often expressed in the form of a corporate mission or vision statement. Business level strategy is mainly concerned with a particular business unit, its strategic aims and objectives. Lastly, func- tional level strategy is the bottom level of strategy, which is concerned with how indi- vidual functions contribute to the actual business strategy. It is about how strategic ob- jectives of each function should be and how they should manage their resources to reach those objectives. (Barnes 2008: 22–23.)
Slack, Chambers and Johnston (2004) suggest that operations strategy is about the pat- tern of strategic decisions and actions which determine the role, objectives and activities of operations (Barnes 2008:28). According to Davis, Aquilano and Chase (2003:30–32) operations strategy is the development of a plan using the main resources of the firm for a high degree of compatibility between these resources and the firm’s corporate strategy in the long run. It also refers to contribution of operations management to a firm’s abil- ity to achieve competitive advantage in that marketplace. Therefore, competitive priori- ties such as low cost, high quality, fast delivery, flexibility and service form the opera- tions strategies which depend on core capabilities of a firm. (Davis et al. 2003:30–32.) Historically, manufacturing functions has been the focus of many of the operations strategy studies. This is due to the fact that manufacturing functions have been consid- ered as the core of the businesses through which the performance was measured and enhanced to reach pre-set objectives. According to Slack, Chambers and Johnston (2009:63) operations are the resources that create products and services. In addition, over the last decades, there has been an increasing emphasis on service operations and supply chain management as operations strategy is assumed to be a subset of overall supply chain strategy (Boyer, Swink & Rosenzweig 2005). Fine and Hax (1985) defines
manufacturing strategy as a vital component of the firm's corporate and business strate- gies, comprising a set of well-unified objectives and action programs aimed at securing a long-term, sustainable advantage over the firm's competitors which should also be consistent with the firm's corporate and business strategies, as well as with the other managerial functional strategies.
Figure 5. A process model for manufacturing strategies (Kim & Arnold 1996).
Although there is not a universal agreement on how operations strategy should be de- scribed, four perspectives emerge from different views and definitions of the subject:
Top-down: as a top-down reflection of what the business wants to do.
Bottom-up: as a bottom-up activity where operations improvements build strategy cumulatively.
Market requirements: translation of market requirements into operations decisions.
Operations resource capabilities: exploiting the capabilities of operations resources in chosen markets (Slack et al. 2009:63).
Furthermore, there are several models or topologies have been proposed for strategy subject that also sheds light into the subject of operations strategy. According to Porter’s model, as one of the most well-known strategy topology, there are three generic strate- gies for gaining competitive advantage: overall cost leadership, differentiation (product or service), and focus (segmentation).
Miles, Snow, Meyer and Coleman (1978) discuss how the world of an organization is changeable and complex and thus every form of organizational behaviour cannot be encompassed by a single typology. Their study proposes a formulation for categorizing organizations. According to this typological classification, there are four strategic types of organizations of which pure forms are described below:
Prospector: For the prospector strategy creativity comes before efficiency as more atten- tion is given to market changes than to improving internal efficiency. Innovation, taking risks and searching for new opportunities are the main focus areas of this strategy. In a dynamic and growing environment, prospectors can create change and uncertainty, pushing the competitors to response. Nike, with its outward expansion and inward rede- sign of operations, 3M, and online companies such as Facebook and Google can be giv- en as examples of prospectors. (Daft 2009:70; Thompson & Martin: 2005:345.)
Analyzer: For the analyser strategy, the aim is to maintain a stable business with a mod- erate level of innovation. It lies between prospector and the defender and with two as- pects to observe: stable and changing. Stable form has formal structures and considers efficiency and keeping customers as a priority, while the changing form monitors com- petitors and their strategies to follow where growth is possible. Amazon.com, DuPont, IBM and Yahoo! are considered to be in the analyzer group. (Daft 2009:71; Thompson
& Martin: 2005:345; Griffin 2013:213.)
Defender: This strategy is considered as the opposite of the prospector, since it is con- cerned with stability and retrenchment. It neither seeks for growth nor innovates. The primary concern is internal efficiency, present operations and steady customers. De- fenders have conservative beliefs with low-risk strategies and limited ability to search
for anything new. Some of the well-known defenders are BIC and eBay. (Daft 2009:7071; Thompson & Martin: 2005:345; Griffin 2013:213.)
Reactor: The main characteristic of reactor is the inability to effectively respond to change pressures. In a reactor strategy, there is no defined long-range plan, a mission or goal for the organization to take actions for. Instead, it drifts with environmental events which might lead to failed companies. Miles et al. (1978) suggests three reasons why organizations become reactors: top management failing the articulation of organiza- tion’s strategy, failure in shaping the organization’s structure, and failure to adapt changes in environmental conditions. Kmart, Chrysler and Dell have shown signs of reactor strategy during the last decade. (Daft 2009:72; Thompson & Martin: 2005:345;
Griffin 2013:214.)
Table 1. Miles and Snow’s strategy typology (Daft 2010:73; Miles et al. 1978).
Strategy Environment Organizational
Characteristics
Defender Protect turf; secure current market.
Retrench
Stable Tight control, central- ized, production effi- ciency, low overhead Prospector Innovate. Find new
market opportunities.
Grow. Take risks.
Dynamic & growing Strong in research.
Innovative, flexible, decentralized structure Analyzer Maintain current
market with moder- ate innovation
Moderately changing Tight control and flexi- bility, efficient produc- tion, creativity Reactor No clear strategy.
React to specific conditions. Drift.
Any condition No clear organizational approach. Depends on current needs
According to Takala, Hirvelä, Liu and Malindzák (2007) a manufacturing strategy based on a business strategy includes competitive priorities, manufacturing objectives and action plans. Takala et al. (2007) propose that as the first step, competitive priorities are defined to answer what the manufacturing strategy function should achieve regard- ing to cost, quality, flexibility and delivery. Secondly, manufacturing objectives which
have relative emphasis on performance measures are determined. Finally in the third step, these objectives are used to form an action plan by which possible improvement programs and their expected effects are described. A process model of manufacturing strategy by Kim and Arnold (1996) is shown in Figure 5 above. (Takala et al. 2007.) 2.4.1. Competitive priorities
Operation strategies are established on the competitive priorities. It includes low cost, high quality, fast delivery, and flexibility which enable organizations achieve competitive advantage. According to Fine and Hax (1985) manufacturing strategic performance is measured using four main criteria; cost, delivery, quality and flexibility.
These four components are called competitive priorities. According to Ward, McCreery, Ritzman and Sharma (1998) there is a broad agreement that manufacturing competitive priorities can be ex-pressed in terms of these four basic components although there are semantic differences:
Quality: It is measured by considering the return rate, product reliability, cost and rate of field repairs and cost of quality (Fine & Hax 1985). According to Parajogo (2007) quality is a reflection of the competitive strategy of organizations. Furthermore, Garvin (1987) identifies eight dimensions of quality as defined from the customer’s viewpoint:
performance features, reliability, conformance, durability, serviceability, aesthetics, and percieved quality. Quality is considered as a competitive weapon as it helps the organization create and sustain its competitive advantage. (Awwad, Khattab & Anchor 2013.)
Cost: It includes the evaluation of unit cost, total cost and life cycle cost (Fine & Hax 1985). Zhao et al. (2002) describe this priority as the ability to reduce product cost by reducing overheads, labour, raw material costs and production cycle time (Russell &
Millar 2014).
Time (delivery): This priority is examined under percentage of on time shipments, predictability of delivery dates and response time to demand changes (Fine & Hax 1985). It also refers to speed and dependability. Kumar and Kumar (2004) state that
delivery of the required function means that the right product is delivered in the right quantity, at the right time, in the right place, from the right source, with the right service, and, finally, at the right price (Awwad et al. 2013).
Flexibility: It can be measured by product substitutability, product options or variants and response to product or volume changes (Fine & Hax 1985). Scholars agree on the importance of flexibility in coping with uncertainty. Boyer and Lewis (2002) defines it as the ability to change or react with little penalty in time, effort, cost or performance. In other words, it is about coping with changes efficiently and effectively. (Awwad et al.
2013.)
Ward et al. (1998) propose that competitive priorities should guide and constrain the design and operating decisions of manufacturing executives. Furthermore, Hayes and Wheelwright (1984) and Skinner (1969) propose, competitive priorities are useful to both decision makers and researchers, particularly because the variables guide decisions made on process choice, technology, capacity, manufacturing planning and control systems, and quality (Ward et al. 1998). Additionally, operational measures of these priorities have direct managerial utility in auditing the manufacturing strategy and in decision making process of appropriate benchmarking partners among other manufacturers (Ward et al. 1998).
2.4.2. Resource-based view of the firm
Resourced-based view of a firm provides a theoretical foundation for understanding the role operations strategy play in creating and sustaining a competitive advantage (Boyer et al 2005). Resource-based view (RBV) approach is started by Penrose (1959) investi- gating how management internal process can influence behaviour of the company. Ac- cording to Penrose’s theory a company can make economic value by having special ability in managing its resources (Anwar, Subroto, Alhabsji & Djumahir 2014). It has emerged as a unique model of how firms compete since the mid-1980s (Barney 1991, Peteraf 1993, Akio 2005). The idea that firms are heterogeneous in terms of their re- sources and internal capabilities has been at the centre of the strategic management
field. It is suggested that RBV model can be practically used by managers who seek to understand, preserve, or extend their competitive advantage. Furthermore, resources are said to be perfectly immobile if they cannot be traded. Other kinds of resources which are tradable and specialized to firm-specific needs are described as imperfectly mobile.
(Peteraf 1993.)
According to Barney (1991:101, 2001:625) firms resources include all assets, manage- ment skills, capabilities, organizational processes and routines, firm attributes, infor- mation, knowledge, etc. These resources can be classified into three categories: physical capital resources, human capital resources, and organizational capital resources. Ac- cording to this classification, physical capital resources include the physical technology, plant, equipment, geographic location of a firm, and its access to raw materials. Human capital resources include the qualities of individual managers and workers in a firm such as training, experience, judgement, intelligence, relationships, and insight. Lastly, or- ganizational capital resources include formal reporting structure, formal and informal planning, controlling, and coordinating systems of a firm, as well as informal relations within a firm and between the other firms in its environment. (Barney 1991:101.)
Barney (1986) discusses that it is possible for a firm to gain expectational advantages by analysing information on the assets it already possesses. By analysing the resource posi- tion, a manager would have a clearer understanding of his situation for a sustainable advantage and thus fewer strategic mistakes would be made. As long as the assets of a firm are imperfectly mobile, that is inimitable, and non-substitutable, other firms will not be able to copy its strategy. (Peteraf 1993.)
RBV approach is mainly about resource and capability. By identifying the strength and weakness of the resource, companies can make priority scale and select resources that can be optimized to produce the productivity and efficiency. Lastly, RBV shows that the implementation of operations strategy is built by strength and weakness of resource op- erations targeting competitive advantage gain. (Anwar et al. 2014.)
2.5. Sustainable Competitive Advantage
In order to comprehend what SCA (Sustainable Competitive Advantage) really means in today’s world, the distinction between competitive advantage and SCA should be drawn carefully.
The theory of competitive advantage was first proposed by Porter in 1985. He concen- trated on the firm trying to find a way to conceptualize it that would reveal the building stones of competitive advantage and its sustainability. Porter (1996) proposes that com- petitive advantage is at the core of a firm’s performance and thus the success and fail- ure. According to Fahey (1989) competitive advantage stands for anything that distin- guishes a firm from others from the viewpoint of its customers. Kay (1993) defines it as an advantage over a competitor or a group of competitors in a specific market, strategic group or industry. (Foon & Nair 2010:64.) Competitive advantage can also be used to gain profitable market share which will bring the need for protection. In order to make the best use of its limited resources, a firm should target competitors that it sees as big- gest treat and about whom it has the most knowledge. Naturally, a firm is expected to have more knowledge about existing competitors that pose bigger threat than potential competitors. (Barney, McWilliams & Turk 1989.) Barney et al. (1989) suggests compet- itive strategy should focus on insulation of firms from existing competitors since the ability to develop effective competitive strategies for potential competitors with specific unknown capabilities is limited. However, there is a need for maintaining the competi- tive advantages over time for both existing and potential competitors. Therefore, the objective of the firm should be sustaining the competitive advantage.
Sustainability of a competitive advantage depends upon the possibility of a competitive duplication. Sustainability is achieved only if it continues to exist after efforts to dupli- cate that advantage have ended (Barney 1991:102). In other words, SCA is an imple- mentation of a unique value creating strategy while other organizations are still unable to realize the benefits of it. After he first postulated the resource-based view of the firm in 1991, Barney (2001) developed the definition of SCA as a resource-based theory.
According to his theory, in order to have the potential of sustained competitive ad-
vantage a firm resource must be valuable, rare, imperfectly imitable, and without equiv- alent substitutes (Barney 1991:105–106). Furthermore, Baumol et al. (1982) and Barney et al. (1989) suggest that the term “sustainable competitive advantage” is used to de- scribe the attributes and resources of a superior performer which cannot be duplicated or imitated by the current or potential competitors in an industry. (Foon & Nair 2010:64.) The theory of SCA has emerged as one of the most important theoretical frameworks in strategic management field in the recent years. The development of SCA could be cate- gorized into two major concepts as follows: cost and differential advantage concepts, and resource based concept. As the more recent view, the concept of the resource-based view (RBV) (Barney 1991; Conner 1991; Peteraf 1993) has been dominant in studies related to the sources of SCA. Another dominant concept was “intangible resource”
(Hall, 1993) which mainly focused on intangibility of resources as source of competi- tive advantage such as branding, market orientation, organizational learning, innovation, and relationship marketing. Although, in the last two decades, new terminologies such as learning organization, knowledge management, technology and innovation, and glob- alization have emerged, SCA remained as one of the most important issues in strategic management. Lastly, the sources of SCA and the main focus of firms have become more tacit and intangible in the 21st century. (Foon & Nair 2010:64–75.)
3. SLOVENIA AND SMART SPECIALIZATION STRATEGIES
3.1. The Republic of Slovenia
The Republic of Slovenia is located in Central Europe with the neighbouring countries Italy, Austria, Croatia, and Hungry, and stretching across the Alps, the Dinaric Alps and the Pannonian Plain to the Mediterranean (Vlada n.d.). The capital Ljubljana is located in the centre of the country. Its population is 2,061,085, which is 0.4% of total EU population. Slovenia became a member of EU in 2004. It joined the Eurozone in 2007 and also became a Schengen Area member in late 2007. (Europa 2015.)
Figure 6. County map of the Republic of Slovenia (World Fact Book 2015).
The country covers an area of 20,273 km2. Despite being geographically small, it has its own characteristics and unique features. Around half the territory of Slovenia is covered by forests (10,124 km2); it is the third most forested country in Europe, after Finland and Sweden (Slovenian S3 2014). The most important sectors of the country’s economy
were industry, wholesale and retail trade, transport, accommodation and food services, and public administration, defence, education, human health and social work activities in 2014. The main export and import partners are Germany, Italy and Austria. (Europa 2015.)
Figure 7. Key attractiveness indicators for Slovenia (WCY 2014).
Despite having suffered the recession in 2008-2009 in the wake of the global financial crisis, Slovenia has one of the highest per capita GDPs in Central Europe with a well- educated labour force (approximately 913,500), and a strategic point between the Bal- kans and Western Europe. In 2014, with the help of growing export due to the demand in larger European markets, GDP growth raised up to 2.6%, while the high unemploy- ment rate fell to 13%. According to 2014 estimations, GDP of the country was com- posed by 2.1% agriculture, 28.4% industry, and 69.5% services as by sector of origin.
Some of the industries contributing to GDP are: ferrous metallurgy and aluminium products, lead and zinc smelting; electronics, trucks, automobiles, electric power equipment, wood products, textiles, chemicals, machine tools. (World Fact Book 2015.)
3.2. Forests and wood-processing sector in Slovenia
Slovenia is one of the most forested countries in Europe with 1,186,104 ha of forests (in 2010) covering more than a half of its territory (62.3% in 2011 according to World Fact Book). Most of these forests consist of beech, fir-beech and beech-oak sites (70%) with a high production capacity. 76% of Slovenian forests are private property, while the remaining 24% is owned by the state or communes. State-owned forests are larger and undivided, which enable professional management. However, the private forest estates are mostly small and fragmented. Therefore, they are not of economic interest. The number of the private owners in Slovenia is around 313,000 (with co-owners 461,000).
The major fragmentation of forests and the high number of forest owners constitute a serious problem in professional management of private forests in the country. Further- more, it becomes an obstacle to optimal timber production and utilisation of forest po- tential. (ZGS 2005 & 2010.)
Figure 8. Slovenian forest reserves by 2013 (ZGS 2015).
